Investment banks’ earnings set to fall this year due to tough market conditions
The party is over for investment banks, with earnings forecast to fall this year due to the challenging economic environment and a low level of deals, according to JP Morgan research.
JP Morgan analysts cut their average earnings estimate for investment banks worldwide this year by a whopping 20 per cent and slashed their revenues estimate by 21 per cent.
“We see earnings at risk in a challenging credit trading environment, low level of deal flow & lower equity markets with expectations of a stabilisation leading to lower market activity as witnessed historically post sell-off,” said the research.
“Our earnings cuts for 2016 also incorporate our view that if there is market normalisation, it could be followed by a period of lower market activity as we have witnessed in past sell-offs, thus impacting IB revenues,” it added.
A slowdown in economic growth in China, weakness in the eurozone and the ongoing commodities rout have weighed on global markets and made it harder for investment banks to make a profit.
The research said that US financial institutions Goldman Sachs and Morgan Stanley are in a better state due to their “excellent capital position” but downgraded Credit Suisse.
Deutsche Bank got JP Morgan's gold star, as the analysts said it had no liquidity or funding concerns and that market perception of the German bank was too negative.
2017 should be better, however: the research forecasts global investment banks' revenues to grow by seven per cent next year.